Harmonizing a Three-Headed Regulatory Monster (EPA, NHTSA, CARB)

March 14, 2018

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by Graham Noyes and Doug Durante (Low Carbon Fuels Coalition/Clean Fuels Development Coalition/Biofuels Digest) ... While not as entertaining to watch as a Godzilla film with a three-headed flying monster, the current regulatory struggle over national auto standards between the US Environmental Protection Agency (EPA), the National Highway Traffic Safety Administration (NHTSA), and the California Air Resources Board (CARB) is a high stakes battle between determined stakeholders.

Viewed through the tactical lens of the ethanol industry, this regulatory drama sets the stage to restore manufacturing incentives for autos and light trucks that utilize mid-level and higher ethanol blends to reduce petroleum use and increase vehicle efficiency.

Since EPA eliminated key crediting provisions for flex fuel vehicles (FFVs) after model year (MY) 2015, this rulemaking is likely the ethanol industry’s last shot to remain a contender.

Here is a quick look at the current battle, how the federal programs determine what vehicles get built, and how a couple of mechanical fixes could keep FFVs on the road and pave the way for high octane vehicles (HOVs) that utilize engine downsizing, turbocharging, and other advanced technologies.

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Depending on the outcome, changes to the federal programs could potentially unravel the unified national program, particularly if California re-instates its own standards. On the other hand, opening the rules and making program adjustments such as smart and fair fuel and vehicle crediting for ethanol blends would provide relief and savings to the automakers.

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Under the Obama era standards currently in place, electric vehicles (EVs) are a game changing technology and therefore benefit from a suite of credit enhancers including bearing no regulatory responsibility for GHG emissions from the power generating source, being deemed 6.67x times more efficient than a conventional vehicle (California’s efficiency calculation for EVs is 3.4), and receiving a 2x credit multiplier in MY 2017.

While FFVs had previously enjoyed favorable credit generating status (though never quite as favored as EVs), that changed dramatically between MY 2012 and MY 2020.

To understand the nature and impact of the changes, it is necessary to separate out the two distinct federal programs: NHTSA’s Corporate Average Fuel Economy (CAFE) and EPA’s Greenhouse Gas Emission Standards (GHG) program. Lessons learned from how the variable crediting of FFV manufacturing impacted automakers’ manufacturing decisions provide valuable indicators regarding the importance of these programs to the roll-out of next-generation HOVs that can cost-effectively provide performance, fuel efficiency, and petroleum reduction.

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The drastic changes in FFV crediting methodology significantly impacted the overall GHG compliance profile of the automakers. As EPA highlighted in Finding #1 of the Manufacturer Performance Report for MY 2016, the near elimination of the FFV credit in the GHG program was a major contributing factor to MY 2016 being the first year in which the auto industry generated an overall GHG emissions deficit of 9 g/mi. after having generated 7g/mi. of positive credits in MY 2015 and 12-13 g/mi. of credits in MY 2012-2014.

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With the Mid-term evaluation underway, EPA Administrator Pruitt recently remarked that his agency is examining the role of fuels in enabling efficient vehicle technologies. This could be seen as somewhat of a reversal—letting fuels determine vehicle capabilities rather than the other way around.

This comment by Mr. Pruitt indicates an opening for the low carbon liquid fuels industry to achieve some level of parity with EVs that currently receive all manner of credit multipliers. If this opening is missed, the industry will be playing against other technologies on an uneven field of CAFE and GHG compliance for years to come.

What is truly exciting about this opportunity is that from an ethanol perspective it could offer something for everyone.

In California where low carbon fuel is rewarded, the market for E85 has tripled in five years and FFVs are critical. In other states and regions where the high octane sweet spot for ethanol blends is in the 25-40% range for non FFVs, the same CAFE and GHG crediting mechanisms can be prorated to reward these mid-level blends.

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The specific regulatory mechanical fixes necessary are for EPA to extend the current usage factor (known as the F-factor) to MY 2019 and beyond, and for EPA and NHTSA to harmonize the crediting for FFV manufacturing under the CAFE and GHG programs.

We also need to fix the so-called R factor which currently penalizes ethanol blends for a mileage loss.

And finally, however one chooses to use ethanol, the carbon footprint of ethanol is demonstrably better than the power sources for EVs. Ethanol should therefore be treated as carbon neutral as is already the case for EV power.

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The FFV mechanisms can also be crafted to facilitate the CAFE and GHG crediting of high efficiency vehicles that utilize high octane fuels. READ MORE

Let’s Regulate CO2 Emissions, and Forget the 55.4 MPG 2025 Corporate Annual Fuel Economy Standard: The Inexpensive Way to Quickly Reduce Green House Gases (Advanced Biofuels USA)

Let's Talk Technical (Urban Air Initiative)

EPA’s Pruitt says ‘California is not the arbiter’ of the nation’s emissions standards (Washington Post)

Pruitt: California 'can’t dictate to the rest of the country' on fuel emissions (The Hill)

Pruitt Threatens to Put Clean Car Standards in Reverse (Sierra Club)

Why Fuel Economy Standards Matter to U.S. Energy Dominance (Council on Foreign Relations)

Trump Administration Said to Eye Big Cuts to Fuel Economy Rules (Bloomberg)

EPA Chief Signals Showdown With California on Fuel Emission Standards (Bloomberg)

California, Trump Administration on Collision Course Over Auto Rules (Bloomberg)

E.P.A. Prepares to Roll Back Rules Requiring Cars to Be Cleaner and More Efficient (New York Times; includes VIDEO)

FORD: WE AREN'T ASKING FOR A ROLLBACK (Politico's Morning Energy)

California’s Ready to Retaliate If Trump Cuts Auto Rules, Sources Say (Bloomberg)

California attorney general says ready to defend vehicle efficiency standards (Reuters)

HOTEL CALIFORNIA (Politico's Morning Energy)

EPA expected to announce rollback of Obama-era mileage standards -- But will California fight for a pass? (NBC News)

Trump officials prepare to undo fuel-efficiency targets despite some automakers’ misgivings (Washington Post)

Even in Trump’s America. California could determine how clean your car runs (Washington Post)

Automakers ask EPA to overturn review of Obama-era tailpipe standards (Washington Post)

REPORT: Advisers Tell Trump To Let Congress Worry About Reforming Biofuel Mandate (Daily Caller)

Exclusive: Trump weighs dropping personal efforts on biofuel reform - sources (Reuters)

Trump advisors urge him to leave biofuel reforms to Congress: Report (CNBC)

ON THE POLICY FRONT (Politico's Morning Energy)

Honda executive: EPA’s relaxed car efficiency standards plan not ‘sensible’ (The Hill)

Trump’s EPA to roll back auto gas mileage and pollution standards (Wisconsin Gazette)

The Trump administration courts a battle over energy regulations (Washington Post)

EPA to reject Obama fuel efficiency standards early next week -- Scott Pruitt will declare the rules 'not appropriate' but won't announce replacement (AutoBlog)

U.S. EPA poised to announce rejection of Obama vehicle fuel efficiency rules (Reuters)

Trump administration picks new fight with California (The Hill)

California’s Ready to Retaliate If Trump Cuts Auto Rules, Sources Say (Bloomberg)

Excerpt from Bloomberg: “There are benefits to a consistent national approach to regulating greenhouse gas and fuel economy standards,” the Association of Global Automakers said in a statement. The Washington-based trade group represents foreign-based companies including Japan’s Toyota Motor Corp.and South Korea’s Hyundai Motor Co.

If California chooses to stay the course and the federal government loosens its regulations, automakers would to some degree have to manufacture to the state’s standard because of the size of its market and the international trend toward tougher emissions requirements. California also has heft far beyond its borders; New York, Washington and several other states that account for about a third of U.S. vehicle sales have adopted California’s standards.

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An associated Washington advocacy group, Baron Public Affairs LLC, lays out potential strategies the Trump administration and congressional Republicans could use to take aim at California’s electric vehicle requirement.

Under the Baron game plan, the administration could argue that the Transportation Department’s responsibility to regulate fuel economy preempts California’s authority to require automakers to sell zero-emission vehicles in the state. Alternatively, congressional Republicans could tack a legislative rider onto a federal spending bill stripping away any individual state’s prerogative to regulate tailpipe emissions.

Undoing a waiver would be would be legally fraught; the Clean Air Act doesn’t explicitly provide a mechanism for EPA to revoke a waiver. READ MORE

Excerpt from Politico's Morning Energy: Ford Motor Company's Executive Chairman Bill Ford and President and CEO Jim Hackett penned a missive on fuel emissions standards on Tuesday, as an April 1 deadline to decide whether to rewrite the rules covering model year 2022-2025 vehicles edges closer. "We support increasing clean car standards through 2025 and are not asking for a rollback," the pair writes. "We want one set of standards nationally, along with additional flexibility to help us provide more affordable options for our customers. We believe that working together with EPA, NHTSA and California, we can deliver on this standard." Read it here. READ MORE

Excerpt from Washington Post: Within the next few days, several administration officials say, the Environmental Protection Agency will announce that it has concluded that automakers cannot meet the fuel-efficiency guidelines set by the previous administration. Under those guidelines, cars and light trucks would have to average more than 50 miles per gallon overall by 2025.

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California has threatened to press ahead on its own if the administration weakens the federal targets significantly, prompting some automakers to lobby for the current standards to mainly be kept. The current federal requirement for the 2018 model year is 38.3 mpg. By 2025, it would rise to roughly 51 mpg.

On Tuesday, Ford Motor Co. Executive Chairman Bill Ford and CEO Jim Hackett wrote a Medium post calling for “one set of standards nationally, along with additional flexibility” that would allow Ford to sell lower-emissions vehicles that U.S. consumers could afford.

“We support increasing clean-car standards through 2025 and are not asking for a rollback,” they wrote.

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Margo Oge, a former senior EPA official who helped to negotiate the Obama administration’s guidelines with California and the auto industry, said that multiple companies have privately shared the concerns that Ford just raised publicly. Rather than change the 2025 thresholds, the automakers want more options for meeting them given the significant sums manufacturers have already invested.

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On Wednesday, the agency unveiled a proposed rule that would freeze the civil penalties automakers must pay if their fleets fail to meet federal fuel-efficiency requirements. The fine had been slated to rise from $5.50 to $14 for every tenth of a mile per gallon by which companies missed the standards for model year 2019 vehicles.

NHTSA spokeswoman Karen Aldana said officials are still working on a fuel-efficiency-standards package, which she said she cannot discuss until it is “final and publicly released.”

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Pruitt has taken a harder line against California’s autonomy in recent months. Asked by Sen. Kamala D. Harris (D-Calif.) in a January hearing whether he would promise to continue to grant the state’s waiver under the federal Clean Air Act, which allows it to put stricter standards in place, Pruitt declined, vowing only to “review” the issue.

In the weeks since, he has said in media interviews that California should not be able to dictate standards for the rest of the nation and that the state is “not the arbiter of these issues.” READ MORE

Excerpt from Politico's Morning Energy: EPA is expected to announce that it will explore ways to relax vehicle emissions rules for model year 2022-2025. The move likely will provoke a battle with California, which gets a waiver under the Clean Air Act to pursue tougher rules. EPA's review of the vehicle standards was due Sunday, but the New York Times reports Pruitt has already sent a draft 16-page plan to the White House for approval. Sen. Ed Markey already blasted the move, calling a rollback of the standards "a declaration of war on American consumers and the planet."

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TIME TO WAKE UP: Using an installation of 300 alarm clocks, consumer and environmental groups will deliver a literal wake-up call to Ford today, ahead of EPA's announcement on vehicle emissions standards. The event is organized by the Forward Not Backward Coalition, including Public Citizen, Greenpeace USA and the Safe Climate Campaign. If you go: The event begins at 12:15 p.m. in front of Ford's government relations office at 801 Pennsylvania Ave NW. READ MORE

Excerpt from Wisconsin Gazette: Mark Reuss, a General Motors’ product development chief, said in a recent interview that he would rather have a single nationwide standard, even if it stays the same. He called two standards “just waste,” because they would require different vehicle equipment and costly additional engineering. “I want one good one,” he said. “I could focus all my engineers on one.”

Automakers agreed to the standards in 2012, but lobbied for and received a midterm review in 2018 to account for changes in market conditions. In the waning days of the Obama presidency, the EPA did the review and proclaimed that the standards have enough flexibility and the technology is available to meet them.

Janet McCabe, who was acting assistant EPA administrator under Obama when the review was done, said Friday it will take a couple years for the EPA to propose new rules, gather public comment and finalize any changes. Any rollback would likely bring legal challenges, forcing Pruitt’s EPA to defend the science behind the changes.

“This would all take a long time,” said McCabe, now a senior fellow at the Environmental Law and Policy Center.

In the meantime, automakers have to proceed with plans for new cars and trucks under the current gas mileage requirements because it takes years to develop vehicles. READ MORE